Investment Services UK, an emerging market bond broker, has been fined £175,000 by the Financial Services Authority (FSA) because it broke anti-money laundering (AML) rules in failing to implement proper systems and controls.
The company’s managing director Ram Melwani has furthermore been fined £30,000, and become the first approved person to be hit with such a fine. The FSA says he “failed to act with due care, skill and diligence, failed to ensure his firm complied with AML requirements and was knowingly concerned in the actions taken by ISUK.”
According to the FSA, ISUK’s clients are “corporate vehicles” incorporated in offshore jurisdictions with AML regulations more lax than those in the UK. In helping clients set up accounts with a particular bank to take part in bond trades, the company failed to provide information enabling the bank to asses the level of risk to which it would be exposed.
”As a result of ISUK's actions, a small number of individuals were able to operate anonymous accounts and over £8 million entered the UK financial system without the bank knowing the identity of its customers or the source of their funds.In addition, when opening some accounts, ISUK used introduction certificates which are intended to demonstrate that all necessary customer due diligence had been conducted. However, some certificates contained misleading information.”
A number of ISUK’s clients were members of Melwani’s family, and although known by name, the company did not implement procedures for verifying their identity or the source of their funds. FSA investigations found that during the period December 2001-December 2004 ISUK did not implement any formal procedures for identifying individuals, did not provide AML training for staff, and did not apply for FSA approval of its Money Laundering Reporting Officer.
In implementing the fine, the FSA says its AML regime will fail if firms do not undertake sufficient due diligence before issueing the relevant certificates.
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